Reading between the lines on the IEA's mix of hype and warnings on oil.

Jeremy Leggett & Lt Col Daniel Davis in the Huffington Post: “Last week the International Energy Agency in Paris released its annual World Energy Outlook, which projects energy trends out to 2035. As it did last year, the 2013 WEO had plenty of good news for Americans:”“The net North American requirement for crude imports all but disappears by 2035 and the region becomes a larger exporter of oil products.” Before we celebrate the end of the Middle East’s dominant role in global energy, however, a quick review of the IEA’s track record on its projections might be in order. Further, an analysis of a few key global oil production factors exposes the unstable foundation upon which hopes for North American oil independence are built.
Following the two global oil crises of the 1970s, the IEA was upbeat about oil supply looking out a quarter century into the future. But the years of relatively easy-to-get, low-priced oil ended in 2004 as oil prices began their ascent to today’s persistently high levels.
Beginning in 2005 and running through 2011, the IEA issued a number of progressively dire warnings about supply that grew increasingly strident as time passed: The 2005 WEO concluded that oil production in non-OPEC countries would reach maximum production “right after 2010,” and that global demand should be reduced urgently. The 2006 WEO issued what the Financial Times called “an apocalyptic warning” about supply disruptions. The 2007 WEO called for “an electroshock,” and emphasized a need “to act immediately and boldly” to reduce the world’s oil demand.
The 2008 WEO reported that world oil production would need to rise to 106 mb/d by 2030 to meet projected demand, the production equivalent of six new Saudi Arabias. This would be extremely difficult, if not impossible, given the decline of mature fields. “What is needed is nothing short of an energy revolution,” the report said. As one of us (Leggett) describes in a new book, IEA officials had little hope that this could be achieved. Several IEA whistleblowers warned that the agency’s production forecast had been deliberately hyped by member governments.
In 2010, shale began to feature increasingly in the IEA’s story, but only as a “game changer” for gas. In 2011, IEA Chief Economist Fatih Birol said in an Australian TV documentary that time was running out for global oil supply. “I think it would have been better if the governments had started to work on it at least 10 years ago,” he said. But in the latter part of 2011, the insistent warnings about future oil supply were swept away and replaced by a thinly supported narrative of fracking-enabled plenty, which was rapidly and enthusiastically embraced by major media outlets and Western publics at large. We need not wonder why.
Man seems psychologically hardwired to prefer good news to bad. But the reality of oil supply and demand fundamentals has not substantively changed since the IEA began issuing its warnings in 2005. As US Energy Information Administration data confirm, global conventional crude oil production did in fact stop growing and flatten out at around 74-75 million barrels a day in 2005 and despite herculean efforts of the most cutting edge technology, has remain essentially flat since. Additional unconventional liquids — which are not equivalent to crude on several important counts — bring the global total to around 90 mb/d today.
How much of the decline in crude production has been counterbalanced by the new US shale oil production to date? The answer is barely 2 million barrels per day — which required more than half the world’s oil rigs outside Russia and China to produce. Worse, detailed studies by shale experts such as Canadian geoscientist David Hughes suggest that oil production from US shale plays cannot increase much more. Nearly all the best spots have already been drilled and, he says, evidence indicates tight production could peak somewhere around 2017. Yet demand continues to rise, driven by the growing economies of China, India and the Middle East. In order to meet it, prices will have to rise higher still, testing the global economy’s ability to sustain growth.
Many governments are pinning their hopes — indeed, some their national economic health — on this feel-good narrative of perpetual abundance, yet which is based on thin evidence and a great deal of industry bluster. We believe that considerable evidence suggests the decline trend in global oil production will resume before the end of this decade. For example, even the otherwise optimistic 2013 WEO made this stunning admission:
“Our analysis of more than 1,600 fields confirms that, once production has peaked, an average conventional field can expect to see annual declines in output of around 6% per year. While this figure varies according to the type of field, the implication is that conventional crude output from existing fields is set to fall by more than 40 mb/d by 2035. Among the other sources of oil, most unconventional plays are heavily dependent on continuous drilling to prevent rapid field-level declines. Of the 790 billion barrels of total production required to meet our projections for demand to 2035, more than half is needed just to offset declining production.”
We contend that growing evidence suggests it is unwise for the United States to stake its energy future on tight oil production continuing at high flow rates and at affordable prices for decades into the future. We recall how those few analysts in 2006 who warned of a looming banking crisis were ignored prior to the collapse, and the considerable price paid by so many when the truth finally imposed itself. In the years following the resulting global recession, Western governments simply printed trillions in bank notes in an attempt to mitigate the disaster. However, once the truth of oil supply and demand imposes itself on the world in the future, we won’t be able to “print” oil; we’ll have to find much more painful ways to adapt to the new reality. We know, as tellers of a story almost no one wants to hear, how difficult our mission is. But the consequences to a world caught unprepared for such an oil crisis are too great to allow us to remain silent.”